1375.4
. (a) Every contract between a health care service plan and a
risk-bearing organization that is issued, amended, renewed, or
delivered in this state on or after July 1, 2000, shall include
provisions concerning the following, as to the risk-bearing
organization's administrative and financial capacity, which shall be
effective as of January 1, 2001:
(1) A requirement that the risk-bearing organization furnish
financial information to the health care service plan or the plan's
designated agent and meet any other financial requirements that
assist the health care service plan in maintaining the financial
viability of its arrangements for the provision of health care
services in a manner that does not adversely affect the integrity of
the contract negotiation process.
(2) A requirement that the health care service plan disclose
information to the risk-bearing organization that enables the
risk-bearing organization to be informed regarding the financial risk
assumed under the contract.
(3) A requirement that the health care service plans provide
payments of all risk arrangements, excluding capitation, within 180
days after close of the fiscal year.
(b) In accordance with subdivision (a) of Section 1344, the
director shall adopt regulations on or before June 30, 2000, to
implement this section which shall, at a minimum, provide for the
following:
(1) (A) A process for reviewing or grading risk-bearing
organizations based on the following criteria:
(i) The risk-bearing organization meets criterion 1 if it
reimburses, contests, or denies claims for health care services it
has provided, arranged, or for which it is otherwise financially
responsible in accordance with the timeframes and other requirements
described in Section 1371 and in accordance with any other applicable
state and federal laws and regulations.
(ii) The risk-bearing organization meets criterion 2 if it
estimates its liability for incurred but not reported claims pursuant
to a method that has not been held objectionable by the director,
records the estimate at least quarterly as an accrual in its books
and records, and appropriately reflects this accrual in its financial
statements.
(iii) The risk-bearing organization meets criterion 3 if it
maintains at all times a positive tangible net equity, as defined in
subdivision (e) of Section 1300.76 of Title 28 of the California Code
of Regulations.
(iv) The risk-bearing organization meets criterion 4 if it
maintains at all times a positive level of working capital (excess of
current assets over current liabilities).
(B) A risk-bearing organization may reduce its liabilities for
purposes of calculating tangible net equity, pursuant to clause (iii)
of subparagraph (A), and working capital, pursuant to clause (iv) of
subparagraph (A), by the amount of any liabilities the payment of
which is guaranteed by a sponsoring organization pursuant to a
qualified guarantee. A sponsoring organization is one that has a
tangible net equity of a level to be established by the director that
is in excess of all amounts that it has guaranteed to any person or
entity. A qualified guarantee is one that meets all of the following:
(i) It is approved by a board resolution of the sponsoring
organization.
(ii) The sponsoring organization agrees to submit audited annual
financial statements to the plan within 120 days of the end of the
sponsoring organization's fiscal year.
(iii) The guarantee is unconditional except for a maximum monetary
limit.
(iv) The guarantee is not limited in duration with respect to
liabilities arising during the term of the guarantee.
(v) The guarantee provides for six months' advance notice to the
plan prior to its cancellation.
(2) The information required from risk-bearing organizations to
assist in reviewing or grading these risk-bearing organizations,
including balance sheets, claims reports, and designated annual,
quarterly, or monthly financial statements prepared in accordance
with generally accepted accounting principles, to be used in a
manner, and to the extent necessary, provided to a single external
party as approved by the director to the extent that it does not
adversely affect the integrity of the contract negotiation process
between the health care service plan and the risk-bearing
organizations.
(3) Audits to be conducted in accordance with generally accepted
auditing standards and in a manner that avoids duplication of review
of the risk-bearing organization.
(4) A process for corrective action plans, as mutually agreed upon
by the health care service plan and the risk-bearing organization
and as approved by the director, for cases where the review or
grading indicates deficiencies that need to be corrected by the
risk-bearing organization, and contingency plans to ensure the
delivery of health care services if the corrective action fails. The
corrective action plan shall be approved by the director and
standardized, to the extent possible, to meet the needs of the
director and all health care service plans contracting with the
risk-bearing organization. If the health care service plan and the
risk-bearing organization are unable to determine a mutually
agreeable corrective action plan, the director shall determine the
corrective action plan.
(5) The disclosure of information by health care service plans to
the risk-bearing organization that enables the risk-bearing
organization to be informed regarding the risk assumed under the
contract, including:
(A) Enrollee information monthly.
(B) Risk arrangement information, information pertaining to any
pharmacy risk assumed under the contract, information regarding
incentive payments, and information on income and expenses assigned
to the risk-bearing organization quarterly.
(6) Periodic reports from each health care service plan to the
director that include information concerning the risk-bearing
organizations and the type and amount of financial risk assumed by
them, and, if deemed necessary and appropriate by the director, a
registration process for the risk-bearing organizations.
(7) The confidentiality of financial and other records to be
produced, disclosed, or otherwise made available, unless as otherwise
determined by the director.
(c) The failure by a health care service plan to comply with the
contractual requirements pursuant to this section shall constitute
grounds for disciplinary action. The director shall, as appropriate,
within 60 days after receipt of documented violation from a
risk-bearing organization, investigate and take enforcement action
against a health care service plan that fails to comply with these
requirements and shall periodically evaluate contracts between health
care service plans and risk-bearing organizations to determine if
any audit, evaluation, or enforcement actions should be undertaken by
the department.
(d) The Financial Solvency Standards Board established in Section
1347.15 shall study and report to the director on or before January
1, 2001, regarding all of the following:
(1) The feasibility of requiring that there be in force insurance
coverage commensurate with the financial risk assumed by the
risk-bearing organization to protect against financial losses.
(2) The appropriateness of different risk-bearing arrangements
between health care service plans and risk-bearing organizations.
(3) The appropriateness of the four criteria specified in
paragraph (1) of subdivision (b).
(e) This section shall not apply to specialized health care
service plans.
(f) For purposes of this section, "provider organization" means a
medical group, independent practice association, or other entity that
delivers, furnishes, or otherwise arranges for or provides health
care services, but does not include an individual or a plan.
(g) (1) For purposes of this section, a "risk-bearing organization"
means a professional medical corporation, other form of corporation
controlled by physicians and surgeons, a medical partnership, a
medical foundation exempt from licensure pursuant to subdivision (l)
of Section 1206, or another lawfully organized group of physicians
that delivers, furnishes, or otherwise arranges for or provides
health care services, but does not include an individual or a health
care service plan, and that does all of the following:
(A) Contracts directly with a health care service plan or arranges
for health care services for the health care service plan's
enrollees.
(B) Receives compensation for those services on any capitated or
fixed periodic payment basis.
(C) Is responsible for the processing and payment of claims made
by providers for services rendered by those providers on behalf of a
health care service plan that are covered under the capitation or
fixed periodic payment made by the plan to the risk-bearing
organization. Nothing in this subparagraph in any way limits, alters,
or abrogates any responsibility of a health care service plan under
existing law.
(2) Notwithstanding paragraph (1), risk-bearing organizations
shall not be deemed to include a provider organization that meets
either of the following requirements:
(A) The health care service plan files with the department
consolidated financial statements that include the provider
organization.
(B) The health care service plan is the only health care service
plan with which the provider organization contracts for arranging or
providing health care services and, during the previous and current
fiscal years, the provider organization's maximum potential expenses
for providing or arranging for health care services did not exceed
115 percent of its maximum potential revenue for providing or
arranging for those services.
(h) For purposes of this section, "claims" include, but are not
limited to, contractual obligations to pay capitation or payments on
a managed hospital payment basis.